Oil Halts Losses as Stronger Demand Overshadows Supply Surge

Oil reversed two days of declines as signs of stronger fuel demand were balanced by surging U.S. supply.

Futures prices fell earlier after OPEC underlined the strength in U.S. production and a government report showed a larger-than-expected crude inventory build. Gasoline stockpiles sank the most since September and total inventories of of crude and products, including the strategic reserve fell by 4.53 million barrels. Total product demand was the highest since January.

“We have strong demand, we have increasing exports, we have a lots of things going on,” Michael Loewen, a commodities strategist at Scotiabank in Toronto, said by phone. “The only reason we are not up more is the more bearish OPEC oil market report this morning.”

Crude has struggled since hitting a three-year high in January. A broader market slump initially drove prices lower, while surging American production and increasing inventories remain a challenge. The Organization of Petroleum Exporting Countries acknowledged the scale of the shale boom, forecasting for the first time that supply growth from rivals will outstrip the increase in demand this year.

Oil Halts Losses as Stronger Demand Overshadows Supply Surge

West Texas Intermediate for April rose 25 cents to settle at $60.96 a barrel on the New York Mercantile Exchange. The discount of April contracts to May widened to 6 cents as growing supply weighed on the value of oil for prompt delivery.

Brent for May settlement rose 25 cents to $64.89 a barrel on the London-based ICE Futures Europe exchange, and traded at a $3.87 premium to WTI for the same month.

Rising U.S. production continues to stoke market fears. U.S. output climbed by 12,000 barrels to 10.381 million barrels a day last week, the highest in weekly data going back to 1983, according to the Energy Information Administration. Production is expected to top 11 million barrels a day in late 2018.

Still, last week’s massive products draw buoyed prices Wednesday. Gasoline stocks fell 6.27 million barrels to 244.8 million, the EIA report showed. Distillate inventories fell by 4.36 million barrels to the lowest level since December. April gasoline rose 2 percent to $1.9243 a gallon.

Prices also received some support from Rex Tillerson’s ouster as U.S. secretary of state. The move could have implications for U.S. sanctions on Iran, which could impact the latter’s oil industry and exports, Facts Global Energy and Royal Bank of Canada warned.

See also: What Tillerson’s Exit Really Means for the Oil Market: Gadfly

“The risk is now much higher that President Trump will not waive the sanctions when it is time to do so in May, thus derailing the deal,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.

Oil-market news:

  • Iraq is talking with the Kurds and Turkey about restarting crude shipments from fields in the Kirkuk area of northern Iraq, Oil Minister Jabbar al-Luaibi told reporters in Basra. Iraq’s oil output is currently at 4.37 million barrels a day and production capacity is 4.7 million.
  • Traders of crude oil cargoes face a dilemma. Is the global market just showing a typical seasonal lull, or warning of something more ominous? Wall Street analysts like Goldman Sachs Group Inc. and JPMorgan Chase & Co. remain convinced prices will strengthen again, but some key data suggest the problem could run deeper.
  • China’s factory output and investment growth unexpectedly accelerated in the first two months of the year amid robust global demand.
  • Restraint shown by U.S. producers supports Goldman Sachs Group Inc’s bullish oil view, the bank said in a report. It expects strong oil demand growth and high OPEC compliance to push inventories further below the five-year average in the third quarter.

— With assistance by Tsuyoshi Inajima, Heesu Lee, Grant Smith, and Robert Tuttle

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